Michigan officials rescheduled a $100 million general obligation bond sale Nov. 15 from Wednesday, pushing it back amid market disruption from Hurricane Sandy.
“We just think it’s better to move it,” said Joseph Fielek, the executive director of the Michigan Finance Authority. “We’re in no real hurry to do the deal, as it’s a pure refunding.”
The bonds will be sold competitively.
The borrowing features $96.3 million of GO environmental program bonds that the state will refund to achieve savings, estimated at least 7%, or $6.7 million over the eight-year life of the debt. The Michigan Treasurer is the issuer.
Miller, Canfield, Paddock and stone PLC is bond counsel. The debt matures from 2013 to 2020.
The new sale date means the state will enter the market the week after an election that features a number of high-profile ballot measures that could impact the state’s credit. Gov. Rick Snyder and other top officials are lobbying voters to defeat five of the six proposals, including one that would limit legislators’ ability to raise taxes, and support one to uphold the state’s emergency management law for distressed local governments.
But even if passed, the proposals would have little impact on the GO sale, said Wayne Workman, with Robert W. Baird & Co., the state’s financial advisor.
“They are not good proposals, but the state would survive and it would have no impact on the GO bonds,” Workman said.
The bonds are part of the Clean Michigan Initiative Program, which finances environmental and natural resources protection programs across the state. A piece of environmental program bonds issued in 2005 with a 5% and a 2017 maturity were yielding 1.03% in Monday trading, according to the Municipal Securities Rulemaking Board web site.
Rating agencies affirmed their low-double A ratings on the state’s GO rating ahead of the deal. Gov. Rick Snyder, Budget Director John Nixon, and state Treasurer Andy Dillon visited the rating agencies two weeks ago lobbying for an upgrade.
Moody’s Investors Service rates the state Aa2 with a stable outlook. Standard & Poor’s and Fitch Ratings have AA-minus ratings on the state. Fitch has a positive outlook on the credit and S&P maintains a stable outlook.
Analysts said Michigan continues to enjoy a steady recovery from a deep decade-long recession that was worsened by the fiscal woes of the Big Three Detroit automakers. “Now Michigan is rebuilding its reserves, in keeping with strong financial management practices, as the auto industry stabilizes,” Moody’s wrote in a ratings report on the upcoming deal. “Bonded debt remains modest and, with the implementation of defined-contribution pension plans, Michigan’s retiree benefit funding burden appears manageable.”
The state’s fiscal year began Oct. 1, and its new 2013 budget is also considered positive for the state, analysts said. It boosts the reserve fund to $505 million and continues its 2012 effort to bring down its other post-employment benefits liability with annual contributions.
Fitch said an upgrade is likely with continued structural balance. “Rating improvement is likely with continued structurally balanced operations as enacted tax code changes are phased in,” Fitch said in its ratings report. “Continued progress is rebuilding fiscal flexibility through reserve fund replenishment is also key to credit momentum.”
Revenues are ahead of most-recent projections, and Snyder touts the fact that the state is enjoying one of the nation’s strongest employment and housing-market growth rates. The administration is also implementing a three-year budgeting process.
